World

Weighty issues remain for Japan, Australia in trade pact talks

TOKYO (Reuters) - Australian Trade Minister Andrew Robb said substantive issues remained in trade negotiations with Japan as the two nations rushed to conclude a free trade agreement before their prime ministers meet on Monday.

"We made progress. There are still a couple of substantial issues we are negotiating and we will meet again tomorrow," Robb said after a five-hour session with Japanese Agriculture, Forestry and Fisheries Minister Yoshimasu Hayashi in Tokyo on Saturday. Robb described the meeting as exhausting.

Hayashi said afterwards that there had been a "frank exchange of opinion." He said he would report on the progress to Prime Minister Shinzo Abe, who will meet Australian Prime Minister Tony Abbot in Tokyo on Monday.

Abbott has set the Japan free trade deal as his top priority, promising to drop tariffs on manufactured imports, including Japanese cars, while pushing Tokyo to cut tariffs on agricultural goods, particularly beef. In doing so, say analysts, he risks alienating China and South Korea.

Japan is already Australia's biggest beef export market both in volume and value terms, taking almost a third of all beef exported in 2012, according to Meat & Livestock Australia.

Failure by Japan and Australia to secure a pact could help ease U.S. concern that a separate trade deal with Australia before an agreement on the 12-nation Trans-Pacific Partnership will giving Australian exporters better access to Japan than their U.S. counterparts.

"In the short term, Australia gets preferential treatment over the U.S. and America will be under pressure to strike a TPP deal short-term that puts it on a level playing field with Australia," said Aurelia George Mulgan, a professor of Japanese politics at the University of New South Wales.

The United States urged Japan on Thursday to open up its farm and auto markets to overseas competition, with Trade Representative Michael Froman saying Tokyo's reluctance to lower trade barriers was holding up the TPP.

President Barack Obama, who had hoped to complete the TPP by the end of last year, is expected to press the case for an ambitious TPP deal with Abe during a visit to Japan later this month. The prospective trade pact is a centrepiece of Obama's push to expand the U.S. presence in Asia.

For the United States, cars are also a source of contention. Imported cars in Japan make up less than 10 percent of the market, which Washington blames on strict dealership limits, regulation and taxes, even though there are no tariffs.

Japanese automakers say the small market share reflects a failure by U.S. car companies to offer smaller cars that are more popular with Japanese drivers.

Australia has a lower hurdle on tariffs for Japanese cars after domestic units of the three remaining carmakers - Toyota Motor Corp, General Motors and Ford Motor - decided to quit domestic production by 2017 due to high costs and a strong currency.